Wolfson v. Comm’r, T.C. Memo. 2022-46 | May 5, 2022 | Lauber, Judge | Docket No. 21343-21L

Memo. Opinion

Summary: A taxpayer sought review pro se under IRC sections 6320(c) and 6330(d)(1) of an IRS determination to uphold a collection action following a Collections Due Process (CDP) hearing with a Settlement Officer (SO). Upon motion of the IRS, the Court granted summary judgment. The court presumed the taxpayer wanted to challenge underlying penalties as he sought waiver of trust fund recovery penalties (TRFPs) because the phrase “underlying tax liability” includes TFRPs. However, the taxpayer had not challenged the underlying liability at the CDP hearing. Consequently, the underlying liability was not reviewable de novo and the Court applied an abuse of discretion standard to the CDP determination.

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Individual taxpayers and business owners can use the IRS’s recently updated Offer in Compromise Booklet to learn how an offer in compromise works and decide if it could help them resolve their tax debt.

An offer in compromise is an agreement between a taxpayer and the IRS that settles a tax debt for less than the full amount owed. An offer in compromise is an option when a taxpayer can’t pay their full tax liability. It is also an option when paying the entire tax bill would cause the taxpayer a financial hardship. The goal is a compromise that suits the best interest of both the taxpayer and the agency.

When reviewing applications, the IRS considers the taxpayer’s unique set of facts and any special circumstances affecting the taxpayer’s ability to pay as well as the taxpayer’s:

• Income
• Expenses
• Asset equity

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Each year, the IRS issues its infamous “Dirty Dozen” list.  Prior awards have gone to micro-captives, syndicated conservation easements, and taxpayer identity theft.  This year, the IRS added another abusive scheme:  “Offer-in-Compromise Mills.”  These tax debt resolution companies – which often advertise resolution of tax debts “for pennies on the dollar” – are the subject of this Insight.

IRS Offers in Compromise. 

The Internal Revenue Code specifically permits the IRS to accept less than the full amount of a tax debt, which is referred to in tax parlance as an “offer in compromise.”  Freeman Law has discussed offers in compromise in prior Insights (see Everything You Need to Know about IRS Offers in Compromise; A Fresh Start for Many?  Economic Downturn Means an Upturn in Favorable Tax Settlements; A Fresh Start for Taxpayers:  The Offer in Compromise; and The Art of IRS Collection Defense in a Post-COVID 19 World), and its attorneys have successfully represented a multitude of clients in resolving their tax debts through this and other collection alternative mechanisms.

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When people first hear about the IRS Offer in Compromise (OIC) Program, (depending on where they hear about it from), many common misconceptions may come with it.  So, I am here to clear up some of the most common myths about the OIC Program

Myth #1 – The OIC Program is a scam or “too good to be true”

There are usually two extremes that people go to when you ask them what they think or know about the OIC program.  This myth is on one end of the scale.  (We will cover the other extreme in the next section).  People often immediately (and falsely) assume that the OIC Program is a scam.  I will admit…there are several “tax resolution” companies out there who do use the program to scam innocent people by promising potential clients that they will get them an Offer in Compromise (and settle for pennies on the dollar) before even looking at their financials.  While that is all codswallop, the program itself is NOT a scam. The IRS has 10 years to collect a tax debt from a taxpayer.  And they certainly do not want to spend that time trying to collect a tax debt that the taxpayer simply cannot pay. They also do not want to cause undue hardship by demanding someone pay their full liability if they cannot afford to do so and still meet their basic living necessities.  So, they are willing to work with taxpayers to get at least some of what is owed to them.  It makes the most economical sense to the IRS if they ever want to see any of that money.

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If you have an outstanding tax debt with the Internal Revenue Service (IRS) but you’re concerned that you are unable to pay it, you may have the option to settle the debt for an amount lower than what you owe. The IRS provides a solution called an Offer in Compromise (OIC) that allows qualifying taxpayers to enter an agreement to pay off their tax liability. An attorney who specializes in tax debt relief can assist you with applying for this tax debt relief program.

The guidelines for qualifying for an Offer in Compromise are somewhat strict but certainly straightforward. First, your reasons for applying must be one of the following:

• Doubt as to Liability – If the IRS has reason to believe that the amount of your tax debt is incorrect, this would be considered doubt as to liability.
• Doubt as to Collectibility – When the IRS doubts that it would be able to collect the full amount of the taxpayer’s debt, it may accept an Offer in Compromise. This is often the case if the amount of the taxpayer’s income and assets is lower than the amount of the liability.
• Effective Tax Administration – The IRS may also accept an Offer in Compromise if paying the tax debt would create a financial hardship for the taxpayer or if collecting the tax debt would be unfair or inequitable.

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As Ben Franklin once said, “In this world, nothing can be said to be certain, except death and taxes.” If you owe a tax debt to IRS, it can be a frightening experience. The IRS has the power to seize and sell your property, place a lien on your property, garnish wages, or even take money straight out of your bank account. If you owe a tax debt to the IRS it is critical that you reach a resolution as quickly as possible, and hopefully, one that is as beneficial to you as possible. For some people, the best option for a solution is the IRS Offer in Compromise (OIC) program. This article will explain what the OIC program is and how to file an OIC.

What is the OIC Program?

The IRS OIC program is a settlement agreement between a taxpayer that owes a tax debt (this includes both individual taxpayers and businesses) and the IRS, that allows for the taxpayer to resolve their tax dispute for less than the full tax debt amount owed. If a taxpayer qualifies for the OIC program they can make a monetary offer to the IRS for a full settlement of their dispute, which the IRS will ultimately accept or reject.

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